Big Boxes Gaining on Paint Stores

The neighborhood paint store had better look over its shoulder: Big-box retailers are coming on strong, fueled by one-stop shopping convenience and economies of scale that produce lower prices, a new market study shows.

The good news: Recovery of the housing and remodeling markets, as well as a return to more contracting and less DIY work, should benefit all paint sales outlets in the next five years.

The report details the fortunes of 4,154 retailers for paint, wallpaper and other wall-related supplies. These outlets, employing nearly 38,000 people, sell stain, varnish, painting equipment and accessories used on interior and exterior surfaces. The report does not include hardware stores or building material suppliers.

Sherwin-Williams

Sherwin-Williams, the largest U.S. paint retailer, recently opened its 3,500th store and emphasizes contractor services. Its Paint Stores Group sales are booming.

The concentration of U.S. stores is roughly consistent with the nation's population centers, with the highest percentage of stores (30.1 percent) in the Southeast, Great Lakes region (15.5 percent), and West (14.7 percent).

Fast Declines, Slow Improvement

The slump in new-home construction and remodeling after the housing market’s collapse “caused demand [in paint store sales] to plummet in 2008 and 2009, dragging down revenue 0.2 percent on average annually since 2008,” the report says.

Since 2010, however, it adds, “demand conditions have slowly improved.”

“Housing starts began to increase considerably in 2012 and will continue to grow strongly over much of the next five years,” says IBISWorld industry analyst Natalie Everett. “Also, remodeling sentiment is stabilizing, according to the National Association of Home Builders.”

Overall, the report projects that revenue will increase by 6.0 percent over 2013 to total $9.4 billion, after growing 4.9 percent in 2012.

Big Box Boost

Paint stores have been slower to feel the gains from the recovery, however, due to growing competition from The Home Depot, Lowe’s and other big-box home improvement stores, the report says.

The popularity of the home-improvement giants “has further held back growth in the paint stores industry,” according to IBISWorld.

“By leveraging their size, these national retailers can achieve significant cost savings on comparable products and pass them down to consumers in the form of lower prices; as such, they are increasingly attracting customers away from paint stores.”

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Paint retailers have had a hard time competing with big-box selection and prices.

The report adds: “This competition was most pronounced during the past five years as the number of do-it-yourself (DIY) consumers increased.”

What DIYs Want

“DIY consumers are more likely to shop at this industry’s competition than to stay loyal to paint stores,” says Everett. “To remain competitive, operators reduced their price markups, and the industry’s average profitability declined.”

As a result, the report says, some underperforming firms left the industry. That resulted in an average annual contraction of 0.3 percent from 2008 to 2013, leaving 4,154 stores today, IBISWorld says.

Sherwin-Williams dominates the paint store industry, with a large number of small and privately owned players making up the remainder.

Steady Growth

Fortunately for paint stores, there should be enough paint industry growth to go around in the years ahead.

IBISWorld forecasts steady growth for the industry in the five years to 2018. “While competition from home improvement stores will likely persist, the upturn of the housing market will boost sales, benefiting the industry,” the report says.

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As the economy recovers, many homeowners will trade their DIY ways for professional contractors, boosting paint-store sales, IBISWorld predicts.

“Further, as disposable income and consumer sentiment continue to increase, DIY consumers will turn their projects over to professional contractors again. These contractors tend to shop at this industry’s stores rather than its home-improvement store competition.

“Consequently, revenue is projected to increase over the period.”

Sherwin-Williams Grows

Indeed, Sherwin-Williams does not appear to be feeling any pinch yet. The company opened its 3,500th retail location in North America on Dec. 5—the company's 70th new retail store in 2012.

Moreover, net sales in its Paint Stores Group increased by 13.2 percent to $5.41 billion in 2012, Sherwin-Williams reported in January. Net sales from stores open for more than 12 calendar months increased by 12.5 percent in the year, and segment profit increased to $861.8 million from $645.7 million in 2011.

The Cleveland-based retailed attributed the gains to both higher paint sales volume and higher prices. The company notes that its stores provide painting contractors with specialty services including job-site delivery, custom color matching, specification assistance and technical advice.